SUMMARY OF:A Sunset Review of the Department of Commerce, Community, and Economic Development, Alaska Gasline Development Corporation Select Financial Issues

Why DLA Performed This Audit

The audit was requested to examine and report on the corporation’s appropriations, spending, and available balances. Additionally, auditors were asked to determine whether appropriated funds were spent in compliance with legislative restrictions and whether significant spending decisions were approved by the board of directors.

Report Conclusions

The audit addresses the Alaska Gasline Development Corporation’s (corporation) funding and spending in terms of its two gas development projects: the integrated interstate gas infrastructure project (AK LNG) and the small diameter in-state pipeline project (ASAP). Since establishment in May 2010, the legislature appropriated to the corporation a net total of $479.8 million for the two projects which earned an additional $5.7 million in interest. From these revenues, the corporation expended $433.3 million and, as of July 24, 2018, had an estimated available balance of $52.2 million.

The corporation’s statutes and appropriation bills impose two main conditions on funding: (1) appropriations should be spent to carry out the corporation’s purposes, powers, and duties, and (2) funding for the two projects should not be comingled. The audit found that the corporation’s spending generally complied with these restrictions, with one exception. The audit identified $150,000 of ASAP costs that were incorrectly coded to the AK LNG fund. This error was corrected once identified by auditors. The audit also found the corporation’s procurement procedures lacked an Alaska veterans’ preference. (Recommendation 1)

The audit evaluated board approval of spending decisions in three operational areas: contracts, budgets, and hiring decisions. Prior to April 2016, there was no requirement for the board to approve contracts. Beginning in April 2016 large dollar contracts should have been either approved by or communicated to the board. The audit found no evidence the board approved or was specifically notified of the large dollar contracts, including those of embedded contractors and consultants. (Recommendation 2)

In accordance with corporation bylaws and procedures, the board was required to approve operating and capital budgets. The audit found two operating and several capital budgets were not properly approved. The corporation had addressed the deficiencies associated with capital budgets prior to the audit, but deficiencies related to operating budget approval were not corrected. (Recommendation 3)

Corporation bylaws only require the board approve the hiring of the corporation’s president. The audit found the board approved hiring decisions in accordance with bylaws.

Findings and Recommendations

  1. The corporation’s board should include an Alaska veterans’ preference in its procurement procedures.
  2. The corporation’s president should create procedures to ensure contracts are approved by, or communicated to, the board in accordance with board bylaws.
  3. The corporation’s board should formally approve the operating budget annually.